Home Daily Commentaries The US dollar is waiting for the Federal Reserve announcement later today

The US dollar is waiting for the Federal Reserve announcement later today

Thursday 8 November, 2018

Daily Currency Update

The US dollar index bounced slightly overnight ahead of the FOCM rate decision. There are expectations that the Fed will continue to signal further monetary tightening when it keeps rates steady at the end of the FOMC meeting later today at 2:00 pm ET. These expectations are probably helping the US dollar to stay flat during today's trading session. Additionally, the market is taking a breath after the US midterm election results pushed the US dollar lower in yesterday session.

Prospects of political gridlock from a split Congress and the removal of uncertainty was not good yesterday for the Greenback, because additional fiscal stimulus might be more unlikely and it keeps the Fed rates on a gradual path as opposed to faster rates hikes.

For now, a split Congress in the US looks like a good outcome for global equity markets, and it may ease trade war tensions. The S&P 500, Nasdaq and Russell 2000 rallied 1.12%, 2.64%, and 1.67% respectively in yesterday’s session.

The technical levels to consider for today for the US dollar index are within a narrow range in the morning, and then a much wider range after 2:00 pm ET; the levels we are expecting for today’s session are 95.68 on the downside and 96.40 on the upside. The technical levels to consider for today in the USD/CAD are 1.3050 on the downside and 1.3150 on the upside.

Key Movers

The Loonie is still trading within a range of 1.3150 and 1.3050, along with the price of crude, which erased its gains in yesterday’s session after the Energy Information Administration (EIA) added fuel to the bearishness of the crude by reporting inventories of 5.8 million barrels for the week to November 12th when the expectation was at only around 2 million barrels. At the end of yesterday session, the Loonie did not enjoy the midterm results in the US.

On the release side, there was good economic data. The housing starts (which measures the annualized number of new residential buildings that began construction during the previous month) showed a 206 k vs. 199 k read.

The Canadian economy remains vigorous, which was emphasized by the Great Ivey Purchasing Managers Index, an important gauge of economic activity. The indicator surged to 61.8 in November, up sharply from 50.4 in October vs. a read of 50.9 points.

The technical levels to consider for today in the USD/CAD are 1.3050 on the downside and 1.3150 on the upside.

The EUR/USD pair is trading this morning at 1.1427, and it is taking a pause and trading sideways while waiting for the FOMC announcement later today. Market participants absorbed the results of the US congressional elections, but they found a big wall at the 1.1500 handle. It slipped back very early in the morning from the mid 1.14s towards a 1.1400 figure.

ECB President Draghi is also due to speak today. Additionally, ECB members, Villeroy and Benoit Coeure, are also speaking in Berlin this morning. However, we expect that the FED announcement will have the most significant impact later today at 2:00 pm ET.

The technical levels to consider for today for the EUR/USD are 1.1400 on the downside and 1.1515 on the upside.

Market participants were still digesting the news of the US midterm election's results yesterday morning as the dollar weakened and stocks appreciated. There’s a feeling that a split Congress may make it more difficult to push through fiscal stimulus, which weighed on the Greenback and yields through the early part of the day yesterday. GBP/USD pushed higher to an intraday high of 1.3175 yesterday afternoon.

The Cable then gave up most of these gains during the New York session and overnight, slipping back towards the 1.3087 interbank level.

There are no significant economic UK data due for release today, but investors will be looking closely to the Fed monetary policy decision later tonight. The central bank is firmly expected to leave its base rate unchanged.

The technical levels to consider for today in the GBP/USD are 1.3041 on the downside and 1.3200 on the upside.

It was a wild ride for the Australian dollar yesterday, and it has found some upside when valued against its US counterpart over the past week, trading as high as 0.7299 versus the US Dollar. The Aussie surged to a 6-week high with a driving factor being the midterm elections.

This morning, the AUD/USD is one of the best performers with a 0.33% gain trading at 0.7297, even better than the NZD/USD at 0.6688 with a gain of 0.08%.

Later today we will have the AUD RBA statement on monetary policy, and the AUD home loans month to month is expected at -1.0%. The previous month was at -2.1%.

The technical levels to consider for today in the AUD/USD are 0.7258 on the downside and 0.7385 on the upside.

The Kiwi dollar versus the US dollar has traded in a narrow 25 pips range over the last 24 hours and remains well supported at these new heightened levels following the release of the strong employment figures released earlier in the week.

The RBNZ also announced that it would be keeping interest rates on hold at 1.75%. In his accompanying statement, RBNZ Governor Orr said that he would not rule out a rate cut and had no view on the level of the Kiwi. There wasn’t much reaction in NZD/USD.

The technical levels to consider for today in the NZD/USD are 0.6737 on the downside and 0.6859 on the upside.

Expected Ranges

  • USD/CAD: 1.3050 - 1.3150 ▼
  • EUR/USD: 1.1400 - 1.1515 ▲
  • GBP/USD: 1.3041 - 1.3200 ▲
  • AUD/USD: 0.7258 - 0.7385 ▲
  • NZD/USD: 0.6737 - 0.6859 ▲